GDP growth forecast for 2018 and 2019 is 7.2 per cent and 7.4 per cent respectively, according to the World Economic Situation and Prospects Report, 2018.
New Delhi: The Indian economy is expected to grow at a robust pace backed by strong private consumption and public investment as well as structural reforms undertaken by the government, the World Economic Situation and Prospects Report 2018, said Monday.
However, the relatively poor performance of private investment remains a concern for the Indian economy going forward, the UN report said.
“If at all we want to achieve higher private investment, public investment has to be done even at the cost of exceeding the fiscal deficit target of 3.2 per cent,” N.R. Bhanumurthy, professor at the National Institute of Public Finance and Policy who released the report in New Delhi, told ThePrint.
Any slippage on the fiscal deficit target should happen only on the government’s capital expenditure side and there is a need to track what has happened to the 1.9 per cent revenue deficit target, he added.
“If they are exceeding 1.9 per cent revenue deficit target and achieving the 3.2 per cent fiscal deficit target, then they are basically squeezing the capital expenditure,” said Bhanumurthy.
The report forecasts a growth rate of 6.7 per cent for FY 17-18, reflecting a sharp one per cent downward revision from the earlier forecast. The GDP growth forecast for 2018 and 2019 has been pegged at 7.2 per cent and 7.4 per cent respectively.
The inflation forecast for the Indian economy is 4.5 and 4.8 per cent for 2018 and 2019 respectively.
“Gross fixed capital formation as a share of GDP has declined from about 40 per cent in 2010 to less than 30 per cent in 2017, amid subdued credit growth, low capacity utilisation in some industrial sectors and balance sheet problems in the banking and corporate sectors,” the UN report said.
“In this environment, vigorous public investment in infrastructure has been critical in propping up overall investment growth,” it said.
Credit growth took a hit due to mounting non-performing assets (NPAs) of public sector banks. Moreover, the asset quality review conducted by the RBI further worsened the situation for public sector banks as the amount of stressed assets on their balance sheets increased. This led to the slowing down of the pace at which the public sector banks sanctioned loans.
Highlighting the crisis, the report said the Indian government has implemented a range of policy measures to address the relatively elevated levels of non-performing loans, for instance, through a large recapitalisation plan for state-owned banks and by implementing new insolvency proceedings.
The report said that subdued inflation, coupled with a good monsoon season, offers scope for additional monetary easing. Earlier this month, the RBI maintained status quo, keeping the interest rate at 6 per cent, citing inflationary pressures.
The report also said that the world economy has strengthened and a steady growth rate of 3 per cent per annum is expected for 2017-2019.
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